Valeant Said to Be Planning to Raise Its Bid for Salix Pharmaceuticals

Valeant Pharmaceuticals is in a bidding war with Endo International for Salix Pharmaceuticals.CreditRyan Remiorz/CP, via Associated Press

Valeant Pharmaceuticals is planning to team up with Pershing Square Capital Management and other top shareholders, including ValueAct Capital, to raise its bid for Salix Pharmaceuticals this weekend, according to people briefed on the matter.

The raised offer will be above $160 a share and consist entirely of cash, these people said. The exact price of Valeant’s new offer was not yet known.

Valeant hopes that the increased offer will be enough to end a bidding war that has erupted over Salix, a maker of gastrointestinal drugs.

Valeant agreed to buy Salix for $158 a share in cash, or about $10 billion, last month. But this week, the drug giant Endo International offered $11.2 billion, or $175 a share, mostly in stock, for Salix.

Although the Endo bid is higher, it also introduces several uncertainties to the sale process for Salix. Among the top concerns for analysts are the need for shareholder votes, a large stock component and the results of a pending treatment approval by the Food and Drug Administration.

Nonetheless, the Endo offer sent Salix shares trading substantially higher, making it difficult for Valeant to stand by its lower bid. Details of Valeant’s new bid were still coming together on Friday afternoon.

The Salix board is meeting on Saturday to consider the rival offers, these people said. The chief concern for the board members’ is whether a deal would provide certainty for the company’s shareholders. That would suggest they may be leaning toward accepting an all-cash offer that does not require a vote.

To finance the increased offer, Valeant is turning to top shareholders, including Pershing Square, the hedge fund run by William A. Ackman. Earlier this month, it emerged that Pershing Square had taken a nearly 5 percent stake in Valeant but pledged to remain a passive investor.

Details are still being hammered out, but Valeant is considering issuing new preferred equity to some shareholders, including Pershing Square and ValueAct, in order to raise cash without taking on more debt.

Pershing Square and Valeant worked closely together for much of last year in an attempt to acquire Allergan, the maker of Botox. But Allergan was eventually acquired by Actavis, earning an enormous profit for Mr. Ackman but leaving Valeant with little to show for its efforts.

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Valeant Pharmaceuticals is planning to team up with William Ackman in hopes that an increased offer will be enough to end a bidding war for Salix Pharmaceuticals.Published OnMarch 13, 2015CreditImage by CNBC

ValueAct has also worked closely with Valeant over the years, and G. Mason Morfit, the ValueAct president, was on the board of Valeant until last year.

But Pershing Square and ValueAct — two of the most successful and outspoken activist hedge funds — have rarely found themselves working together.

“I know Mike Pearson very well,” Mr. Ackman said. “I worked with him for a year. He’s the most disciplined buyer of companies. He’s not going to overpay for Salix.”

Mr. Ackman also suggested that Salix shareholders would be wary of taking so much Endo stock, compared with the cash being offered by Valeant.

“In order for them to take the Endo transaction, they have to walk away from an all-cash deal,” Mr. Ackman said. “If you think Valeant is getting it on the cheap, then you should buy Valeant stock, which is what we did. We think Valeant stock is very cheap.”

Other hedge funds are also said to be helping Valeant strengthen its position, and are said to be acquiring shares of Salix with the intent to support a Valeant bid. Doing so would make it more difficult for the Endo bid to prevail in vote of Salix shareholders.

Valeant is hesitant to take on more debt from banks because it does not want to hurt its credit rating, people briefed on the matter said.

Salix still hasn’t commented on the Endo offer, other to say that it had received it and was reviewing it with its advisers.

Speaking at the Barclays Global Healthcare Conference on Thursday, Endo’s chief executive, Rajiv De Silva, said he hoped the bidding war over Salix would not last too long.

“We have no interest in a long, drawn-out process,” Mr. De Silva said. “We hope that this will be resolved quickly. This is, I believe, in the best interest of the shareholders of all three parties involved.”

A version of this article appears in print on , on Page B2 of the New York edition with the headline: Business Briefing; Valeant Prepares New Salvo in War for Drug Maker. Order Reprints | Today’s Paper | Subscribe